Highlights Day 3: Credit ratings shunned; yields to stay low

Catherine Roy, CIO for Fixed Income and lead portfolio manager for Calvert Green Bond Strategy Portfolio, speaks during the Reuters Global Investment Outlook Summit in New York, November 19, 2014. REUTERS/Brendan McDermid

NEW YORK (Reuters) - Following are some of the highlights from Day 3 of the Reuters Global Investment Outlook Summit, where investors spoke on topics such as the direction of Federal Reserve policy and their best investing plays for 2015.

Fridson said high-yield bond managers are quick to disapprove of credit ratings and there was “good reason for that.” He cited Enron Corp as an example, as it was rated investment grade shortly before defaulting.

“People are not receptive at all to paying attention to ratings, much less the outlooks,” he said. “The idea of relying on the ratings in any way is just anathema.”

CATHY ROY, chief investment officer for fixed income at Calvert

Roy said she was concerned about the influence that so-called systemically important financial institutions and investor flows in and out of exchange-traded funds have on markets.

“You have to scratch your head and say, ‘What’s the doomsday scenario?'” she said. Roy said ETF flows can “single-handedly move the markets” and her investment process must address that risk.

AARON COWEN, chief investment officer of Suvretta Capital

Cowen said the Federal Reserve will likely keep interest rates low to prevent the U.S. dollar from becoming too strong relative to overseas currencies and that low rates will keep equities attractive.

“We think rates stay low, and as a result we think equities are still attractive on a risk-adjusted basis,” he said.

He also said U.S. Treasuries would attract steady buying from investors, including sovereign wealth funds, given paltry yields on government debt in Japan and Germany, which will in turn keep U.S. Treasuries yields low.

GREG PETERS, senior portfolio manager at Prudential Fixed Income

Peters said he was nervous about the divergence between the U.S. Federal Reserve’s inclination to tighten monetary policy and the European Central Bank and the Bank of Japan’s moves toward looser monetary policy.

“I have been surprised by the comfort about this handoff. The fact that nobody is as worried about this as me makes me much more worried,” Peters said.

Wilson said the European Central Bank is “likely” to launch sovereign quantitative easing because other measures may prove inadequate.

“The hurdle is still reasonably high for sovereign QE, but our view is that it’s very likely they will go down that route some time in the second or possibly third quarter of next year,” Wilson said.

GEORGE KING, portfolio strategist at RBC Wealth Management

King said investors should prepare their portfolios for an upsurge in political risk in Britain, where a 2015 election could pave the way for a potentially disruptive exit from the European Union.

“At the beginning of the year we were cautious on emerging markets because of elections in key markets. Ironically...just as the political risk stream in emerging markets begins to ameliorate, we see it beginning to rise in the United Kingdom,” King said.